Portfolio decisions as we approach retirement

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Skyflyerman
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Portfolio decisions as we approach retirement

Post by Skyflyerman » Wed Nov 14, 2018 5:29 pm

Friends, in about 14 months, my wife and I will be living totally off of social security and our portfolio of slightly more than $1M (all in a Vanguard non-Roth IRA). No consumer debt. We will be receiving about $48,000/yr together in social security. With the 4% withdrawal "rule" we should be able to live just fine on $88,000/yr where we live in our new home on a creek near a pond. Lovely home and neighbors. We have about a $208,000 mortgage (remaining). I chose to mortgage at a 3.75%/30 year fixed rather than pay it off and incur taxes and loss of investment return potential over that same time. Emergency fund established in cash. I am moving our (historically aggressive growth) investments to a more "set it and forget it" style, suitable for our retirement years. I would like to average at least 7.0% annual returns to cover 4.0% withdrawals (average) plus 3.0% inflation (average). Anything above that would go to principle appreciation.

I think I'm leaning toward the Vanguard Balanced Fund (VBIAX) or the 3-Fund (or 4-fund with 20% Int'l Exposure) portfolio or Vanguard 2020 Retirement Fund (VTWNX). We have $400,000 in a CD ladder (6 mo-2.5 yr CD's averaging 2.45% after fees) and $86,000 in 1-3 yr bonds, which I plan on reinvesting as they mature. I'd like to keep $100,000 in cash (money market) to take advantage of market corrections and crashes. Current Cash=$275,000 (money market).

Considerations:

1.) Adequate average return (7.0%) with no more than 25% historical drawdown.
2.) Simplicity of management in the case of my dying before my wife or my diminished investment acumen (my wife is not investment savvy).
3.) Adequate equity exposure for principle growth.

Questions:

At this late bull market cycle...

1.) Which of the 3 funds would you recommend for our next 25 years (assuming we live that long).
2.) What has been the 3, 5, 10, 15 and 20 year returns of the 3 and 4 fund Portfolio. A composite would be greatly appreciated!
3.) Would you lump sum a good portion, even at this probable late bull market cycle or Dollar Cost Average as it were for a few years, till I reinvest the maturing CDs/Bonds.

I would be extremely grateful with your help regarding these decisions. Thank you!

Grt2bOutdoors
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Re: Portfolio decisions as we approach retirement

Post by Grt2bOutdoors » Wed Nov 14, 2018 6:09 pm

You’re not going to find it - 7% avg returns with no more than 25% historical drawdown. 2008 threw that out the window for just about any fund holding 60%+ in equities and you’ll need equities to generate anything close to that level of returns. Play with portfoliovisualizer.com, plug in the various funds and allocations, you can see what the annual returns and associated statistics are. And if you do find it - let us know.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Wed Nov 14, 2018 6:25 pm

Thank you.

PQ12$
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Re: Portfolio decisions as we approach retirement

Post by PQ12$ » Wed Nov 14, 2018 6:31 pm

I don't have advice of you but am interested in hearing what this board suggests. You are ahead of me a few years but this is where I hope to be.

Congrats on being in such a good place at this time of life - I am sure you worked hard for it!

ExitStageLeft
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Re: Portfolio decisions as we approach retirement

Post by ExitStageLeft » Wed Nov 14, 2018 6:50 pm

Backtesting on Potfolio Visualizer shows a 50/50 asset allocation easily meeting the criteria of 7% yield and max 25% drawdown. Since 1998 yields are lower, but it doesn't miss the mark by much.

https://www.portfoliovisualizer.com/bac ... alBond1=50

Much harder to know what it would do in the future...

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dwickenh
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Re: Portfolio decisions as we approach retirement

Post by dwickenh » Wed Nov 14, 2018 8:02 pm

40% US Total Stock, 10% Total International, 45% Total Bond, and 5% Money Market for Cash Withdrawals. That way you can pull the next year's withdrawal from Stocks when they are up, and Bonds when stocks are down. You can't do that with a balanced fund so it gives you a little more flexibility. I have 50% taxable and 50% tax deferred and my allocation is the same, but the placement of funds is different due to tax liability.

Congrats on your planning and enjoy the retirement,

Dan

(I owe all of my training to Taylor)
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Dottie57
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Re: Portfolio decisions as we approach retirement

Post by Dottie57 » Wed Nov 14, 2018 9:36 pm

How much do you actually have to invest? I see 275k in cash, and 400k in cds. Do you have more?

Generally 4% is a safe withdrawl rate for a 30 year retirement portfolio. If you have $1m you can take out. 40k per year. It doesn’t sound likeyou have that amount. A bit of clarification would help.

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Thu Nov 15, 2018 12:14 am

Thanks guys, I hadn't used the Portfolio Visualizer before and it is a very powerful, easy-to-use tool. Very helpful!

Another option I hadn't considered is to get an annuity for about $400,000 giving us all we need (with Social Security) to meet our expenses and needs. The other withdrawals from the remaining invested $600,000 can be used for miscellaneous expenses and future gifting to family and charitable organizations.

KlangFool
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Re: Portfolio decisions as we approach retirement

Post by KlangFool » Thu Nov 15, 2018 12:35 am

OP,

How old are you and your wife? Is delaying taking the social security possible? Depending on the age and other factors, you may get about 8% return by taking the social security later.

Instead of paying 400K to the annuity, use that 400K to delay taking social security for 5 years.

KlangFool

snowox
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Re: Portfolio decisions as we approach retirement

Post by snowox » Thu Nov 15, 2018 5:23 am

I have yet to see a annuity that makes sense. What type of return are they offering and could you be more specific about that and as others mentioned your age. The more info the better.

b4real
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Re: Portfolio decisions as we approach retirement

Post by b4real » Thu Nov 15, 2018 11:29 am

Skyflyerman wrote:
Thu Nov 15, 2018 12:14 am
Another option I hadn't considered is to get an annuity for about $400,000 giving us all we need (with Social Security) to meet our expenses and needs. The other withdrawals from the remaining invested $600,000 can be used for miscellaneous expenses and future gifting to family and charitable organizations.
OP,
I found the book Unveiling the Retirement Myth by Jim Otar helpful in understanding where we stood as we were getting close to retirement. In particular, review Otar's zones to help determine how much, if any, of your nest egg should be annuitized. viewtopic.php?t=144663

Also, you may find the wiki article on retirement planning helpful: https://www.bogleheads.org/wiki/Outline ... Retirement

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ruralavalon
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Re: Portfolio decisions as we approach retirement

Post by ruralavalon » Thu Nov 15, 2018 11:56 am

Congratulations on your imminent retirement :) .

I like the idea of simplifying to an easily managed single fund portfolio.

Is the $400k in the CD ladder and $275k in money market funds in addition to your "slightly more than $1M" in the tradtional IRA (for a total of slightly more than $1.675M)? Or is the CD ladder and money market cash included in that "slightly more than than $1M"?

What are your ages?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Thu Nov 15, 2018 12:23 pm

KlangFool wrote:
Thu Nov 15, 2018 12:35 am
OP,

How old are you and your wife? Is delaying taking the social security possible? Depending on the age and other factors, you may get about 8% return by taking the social security later.

Instead of paying 400K to the annuity, use that 400K to delay taking social security for 5 years.

KlangFool
I am 67 in a few months. My wife is 65 and is already taking SS (we have opposing views on when to collect!). The earliest I will begin taking SS is when I'm 68 (about $2,690/mo). Using cash from savings I could make it to 69 or even 70. By deferring SS each year to 70, I'm trading the "possibility" of better gains from investments for a "guaranteed" return of 8% each year (for the rest of our lives) if I wait. At my age, that sounds like a trade off I can be happy with. By deferring SS to 70, I will use up about $170,000 for 2 years of living, bringing the total investable principle down to about $830,000 in 2022. My SS at 70 would be about $3,135/mo. My wife's (at $1029 now) would go up some, but not to a full 1/2 of mine (because she's already been withdrawing since 62). Perhaps someone with specific SS knowledge can explain just what hers will increase to. Estimating our mutual SS to be $4,350/mo at my age 70, we would have about $52,000/yr in SS. We would only need to withdraw about $36,000/yr from our investments from then on, in today's dollars, for a very decent, but not lavish, retirement.

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Thu Nov 15, 2018 12:50 pm

ruralavalon wrote:
Thu Nov 15, 2018 11:56 am
Congratulations on your imminent retirement :) .

I like the idea of simplifying to an easily managed single fund portfolio.

Is the $400k in the CD ladder and $275k in money market funds in addition to your "slightly more than $1M" in the tradtional IRA (for a total of slightly more than $1.675M)? Or is the CD ladder and money market cash included in that "slightly more than than $1M"?

What are your ages?
Me: 67 in a few months. Wife: Just 65

We were broke 18 years ago (divorce) and now are 1.2M net assets millionaires (liquid assets plus home equity...if you'll allow me that...=$1.2M).

Current situation:
Inherited IRA #1: $ 44,000
Inherited IRA #2: $ 77,000
SP500: $ 50,000
CD's: $ 400,000
Bonds: $ 86,000
Cash: $ 280,000
Annuity (Ret.). $ 75,000
==========
$1,012,000

I realize that after 30 years of being a very aggressive growth investor (90%+ equities), that we're very light on stocks right now (about 17%), but that is only recent and on purpose, until I get all of my ducks in a row with a specific retirement game plan.

Chip
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Re: Portfolio decisions as we approach retirement

Post by Chip » Thu Nov 15, 2018 1:31 pm

Skyflyerman wrote:
Thu Nov 15, 2018 12:23 pm
I am 67 in a few months. My wife is 65 and is already taking SS (we have opposing views on when to collect!). The earliest I will begin taking SS is when I'm 68 (about $2,690/mo). om our investments from then on, in today's dollars, for a very decent, but not lavish, retirement.
Do you realize that you could be collecting a spousal benefit based on your wife's work record NOW, while still allowing your ultimate benefit to increase up until age 70?

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ruralavalon
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Re: Portfolio decisions as we approach retirement

Post by ruralavalon » Thu Nov 15, 2018 1:58 pm

Skyflyerman wrote:
Thu Nov 15, 2018 12:50 pm
Current situation:
Inherited IRA #1: $ 44,000 <- what funds are held in this account, and what fund firm is this account with?
Inherited IRA #2: $ 77,000 <- what funds are held in this account, and what fund firm is this account with?

SP500: $ 50,000 <- what sort of account is this in, and what fund firm us the account with?
CD's: $ 400,000 <- held in an account (if so what type and where) or direct from bank or credit union?
Bonds: $ 86,000 <- what sort of account is this in, and what fund firm us the account with?

Cash: $ 280,000 <- what sort of account is this in, and what fund firm us the account with?

Annuity (Ret.). $ 75,000 <- type and vendor?
==========
$1,012,000
Skyflyerman wrote:
Wed Nov 14, 2018 5:29 pm
1.) Which of the 3 funds would you recommend for our next 25 years (assuming we live that long).
2.) . . . . .
3.) Would you lump sum a good portion, even at this probable late bull market cycle or Dollar Cost Average as it were for a few years, till I reinvest the maturing CDs/Bonds.
1) To address your question about how to invest, more information is necessary.

Could you also please list the investments and how held, giving fund names, tickers and expense ratios? Please see this for information needed and format: "Asking Portfolio Questions". You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.


3) Lump sum or in stages? There is much discussion here about the two approaches. I am in the invest it "all at once" camp. When investing a large chunk of new money, "all at once" works out better about 2/3 of the time. Please see the Vanguard paper, "Dollar-cost averaging just means taking risk later".

Wiki article, "Dollar-cost averaging". “Lump sum investing will always carries a higher expected return, because it immediately moves your funds from asset classes with lower expected returns to ones with higher expected returns. Note that higher expected returns do not guarantee that your actual returns will be higher. According to an investopedia article, studies indicate that lump sum investing has produced higher returns 66% of the time”.

Here is another interesting article to read -- "What if you only invested at market peaks?"

The compromise solution is to invest 50% in a lump sum now, and invest the rest in stages (for example an additional 05% on a predetermined date each month for the next 10 months). Don't needlessly agonize over when the best time may be to invest.


Skyflyerman wrote:
Thu Nov 15, 2018 12:14 am
Another option I hadn't considered is to get an annuity for about $400,000 giving us all we need (with Social Security) to meet our expenses and needs. The other withdrawals from the remaining invested $600,000 can be used for miscellaneous expenses and future gifting to family and charitable organizations.
You could consider a Single Premium Immediate Annuity (SPIA) now or later in retirement. A good resource for shopping an annuity is www.immediateannuities.com.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Thu Nov 15, 2018 2:28 pm

Chip wrote:
Thu Nov 15, 2018 1:31 pm
Skyflyerman wrote:
Thu Nov 15, 2018 12:23 pm
I am 67 in a few months. My wife is 65 and is already taking SS (we have opposing views on when to collect!). The earliest I will begin taking SS is when I'm 68 (about $2,690/mo). om our investments from then on, in today's dollars, for a very decent, but not lavish, retirement.
Do you realize that you could be collecting a spousal benefit based on your wife's work record NOW, while still allowing your ultimate benefit to increase up until age 70?
:shock: No, I didn't know that! Would it be deducted against my future SS when I finally take it? I better give Social Security a call! Thanks for the heads up!

Chip
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Re: Portfolio decisions as we approach retirement

Post by Chip » Thu Nov 15, 2018 2:55 pm

Skyflyerman wrote:
Thu Nov 15, 2018 2:28 pm
:shock: No, I didn't know that! Would it be deducted against my future SS when I finally take it? I better give Social Security a call! Thanks for the heads up!
No, there is no effect on your future SS. What you will be doing is called a restricted application for spousal benefits ONLY. You are able to do this because you were born on or before 1/1/54. Those born after that date are ineligible for this benefit.

My wife and I are doing this exact thing.

There are many threads here about it: https://www.google.com/search?&q=restri ... eheads.org

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Thu Nov 15, 2018 3:23 pm

Chip, I'll get to reading those asap, but until then, did I lose out the past 3 years that she's been taking SS and I didn't take the spousal benefit, or would they make up for it when I do request it?

Chip
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Re: Portfolio decisions as we approach retirement

Post by Chip » Thu Nov 15, 2018 4:24 pm

Skyflyerman wrote:
Thu Nov 15, 2018 3:23 pm
Chip, I'll get to reading those asap, but until then, did I lose out the past 3 years that she's been taking SS and I didn't take the spousal benefit, or would they make up for it when I do request it?
You weren't eligible for a restricted application until you reached full retirement age, which I assume is 66 for you. I don't know about being able to "make up" the lost benefit. My gut says you can't but I am far from an expert. We have some experts here; hopefully one will weigh in. If not, start another thread with an on-point title.

You Know What I Mean
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Re: Portfolio decisions as we approach retirement

Post by You Know What I Mean » Thu Nov 15, 2018 8:45 pm

Chip wrote:
Thu Nov 15, 2018 4:24 pm
Skyflyerman wrote:
Thu Nov 15, 2018 3:23 pm
Chip, I'll get to reading those asap, but until then, did I lose out the past 3 years that she's been taking SS and I didn't take the spousal benefit, or would they make up for it when I do request it?
You weren't eligible for a restricted application until you reached full retirement age, which I assume is 66 for you. I don't know about being able to "make up" the lost benefit. My gut says you can't but I am far from an expert. We have some experts here; hopefully one will weigh in. If not, start another thread with an on-point title.
Hi Sky,

I am not an expert, but IMO you need to call Social Security right away! You will probably want to submit a restricted application (for spousal benefits only, as noted by Chip above) this month. You can receive retroactive benefits in a lump sum going back only six months. If you wait till December, you will have missed another month of the spousal benefit. I’ve included a couple of references below.

Good luck!

https://secure.ssa.gov/poms.nsf/lnx/0200204030

“B. Retroactivity For Retirement Insurance Benefits (RIB)
“2. Applications filed after FRA
"For RIB applications filed after FRA, we allow up to 6 months retroactivity. However, for those who file less than 6 months after FRA, we only pay retroactive benefits back to the month of FRA attainment. If a claimant is eligible and elects retroactivity, explain the effect the retroactive payment will have on the ongoing monthly benefit amount when electing to start benefits in a retroactive month at any time before age 70 (i.e., taking the lump sum payment will permanently reduce the ongoing monthly benefit amount).”

https://www.weisseducation.com/retroact ... -not-12598

“First, we should cover the basic rules of Social Security retroactive benefits:
“Retroactivity: an application for Social Security benefits may permit payment of benefits prior to the actual month of filing in certain cases.
“Rules Vary by Type: The retroactivity rules depending on the type of benefit that you are eligible for.
“Retirement and Spousal Benefits: Up to six months of retroactive benefits.”

Chip
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Re: Portfolio decisions as we approach retirement

Post by Chip » Fri Nov 16, 2018 5:19 am

You Know What I Mean wrote:
Thu Nov 15, 2018 8:45 pm
https://secure.ssa.gov/poms.nsf/lnx/0200204030

“B. Retroactivity For Retirement Insurance Benefits (RIB)
“2. Applications filed after FRA
"For RIB applications filed after FRA, we allow up to 6 months retroactivity. However, for those who file less than 6 months after FRA, we only pay retroactive benefits back to the month of FRA attainment. If a claimant is eligible and elects retroactivity, explain the effect the retroactive payment will have on the ongoing monthly benefit amount when electing to start benefits in a retroactive month at any time before age 70 (i.e., taking the lump sum payment will permanently reduce the ongoing monthly benefit amount).”

https://www.weisseducation.com/retroact ... -not-12598

“First, we should cover the basic rules of Social Security retroactive benefits:
“Retroactivity: an application for Social Security benefits may permit payment of benefits prior to the actual month of filing in certain cases.
“Rules Vary by Type: The retroactivity rules depending on the type of benefit that you are eligible for.
“Retirement and Spousal Benefits: Up to six months of retroactive benefits.”
Excellent. I knew about backdating but wasn't sure it applied to spousal benefits as well as retirement benefits.

I also just looked through Mike Piper's book. In the 2017 edition on p. 96 he writes:
Mike Piper wrote:Alternatively, if you decide at some point that you wish you had claimed benefits earlier (whether retirement benefits, spousal benefits, widow(er) benefits or child benefits), you can request in your application that you receive benefits for up to six months prior to the month in which you actually file your application.

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Fri Nov 16, 2018 9:15 pm

I really appreciate the help fellow Bogleheads. My plan is to immediately call Social Security to initiate application for spousal benefits while deferring my own benefits til 70. After crunching the numbers on Portfolio Visualizer (thanks for letting me know about it!), it became clear to me that the 3-fund (with about 53% US/13% Int'l) or more simply, the Balanced fund will be about perfect for my risk tolerance and desired long-term financial goals. Thanks to all who contributed your thoughts. I estimate the SS comments will bring in about $25,000 unplanned income. Again, thanks to all.

Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Portfolio decisions as we approach retirement

Post by Chip » Sat Nov 17, 2018 6:52 am

Skyflyerman wrote:
Fri Nov 16, 2018 9:15 pm
Thanks to all who contributed your thoughts. I estimate the SS comments will bring in about $25,000 unplanned income. Again, thanks to all.
This is great news.

I have also received valuable advice from this forum over the years. Just musing, but I wonder what the dollar value of all the good advice dispensed here might be?

You Know What I Mean
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Re: Portfolio decisions as we approach retirement

Post by You Know What I Mean » Sat Nov 17, 2018 7:18 am

Chip wrote:
Sat Nov 17, 2018 6:52 am
Skyflyerman wrote:
Fri Nov 16, 2018 9:15 pm
Thanks to all who contributed your thoughts. I estimate the SS comments will bring in about $25,000 unplanned income. Again, thanks to all.
This is great news.

I have also received valuable advice from this forum over the years. Just musing, but I wonder what the dollar value of all the good advice dispensed here might be?
Excellent! It's great that Chip identified and emphasized that Social Security opportunity. (My wife and I are doing something similar. We are both 67. She filed at age 62 + 1 month, and I filed a restricted application for spousal at my age 66.)

Good luck to all.

BarbBrooklyn
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Location: NYC

Re: Portfolio decisions as we approach retirement

Post by BarbBrooklyn » Sat Nov 17, 2018 7:59 am

Chip wrote:
Thu Nov 15, 2018 1:31 pm
Skyflyerman wrote:
Thu Nov 15, 2018 12:23 pm
I am 67 in a few months. My wife is 65 and is already taking SS (we have opposing views on when to collect!). The earliest I will begin taking SS is when I'm 68 (about $2,690/mo). om our investments from then on, in today's dollars, for a very decent, but not lavish, retirement.
Do you realize that you could be collecting a spousal benefit based on your wife's work record NOW, while still allowing your ultimate benefit to increase up until age 70?
+1
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Skyflyerman
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Re: Portfolio decisions as we approach retirement

Post by Skyflyerman » Sat Nov 17, 2018 8:56 pm

Chip: "..but I wonder what the dollar value of all the good advice dispensed here might be?"

Me: Inestimable, and is only exceeded by my gratefulness! :wink:

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